Analysis: German hint of Greek debt relief raises euro hopes

BRUSSELS (Reuters) - Three years into the euro zone's debt crisis, Germany's finance minister hinted tantalisingly last week at a potential breakthrough.

Behind closed doors at a meeting in Paris of a small group of senior policymakers, Wolfgang Schaeuble indicated that Berlin could eventually agree to write off some of the money it has lent Greece, in order to make its debt sustainable.

Three people present or briefed on the talks said Schaeuble had suggested there could be some kind of "conditional debt relief" for Athens if it sticks to tough economic reforms.

But Schaeuble backtracked within 24 hours.

The idea, aired publicly this month by German central bank chief Jens Weidmann, could be a game-changer in the currency area's crisis since it offers for the first time the prospect of sharing out losses to make the debt-crippled state viable in the long run.

But it is politically explosive in Germany, where many lawmakers, jurists and commentators fiercely oppose any idea of a "transfer union" in which wealthier northern EU states would subsidize or underwrite weaker southern partners.

Schaeuble told his peers from France, Spain and Italy and International Monetary Fund Managing Director Christine Lagarde that Berlin would be willing to consider a Greek debt write-down, not now but at a later stage, the sources said.

That pointed to a possible review of Greece's debt outlook sometime after next year's German general election, and before a second Greek bailout program expires in 2016.
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